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Financial Planning

How to get more money from Social Security

Lisa Colletti serves as director of wealth management, principal at
Aspiriant, an independent wealth management firm. Lisa is a member of
Aspiriant’s Wealth Planning Committee which is responsible for creating and
maintaining the firm’s overall client service offering and experience. Prior to
joining Aspiriant, Lisa worked in the Private Client Advisor practice at
Deloitte and Touche as a director. Lisa is a Certified Financial Planner and a
member of the New York Bar Association and the Financial Planning Association.
Follow Lisa on Twitter @CollettiLisa
and on Linkedin.

The words “Social Security” conjure two immediate questions for most Americans: "Will I get my benefits?" and, if so, "At what age should I elect to receive my first check?"

It's no secret that the Social Security system is experiencing financial problems — people are living longer, the baby boomers are reaching retirement, and the current birthrate is low. Due to the resulting drop in the worker-to-beneficiary ratio, the Social Security Board of Trustees project that by 2035 payroll, taxes will be enough to pay for only 75% of scheduled benefits.

While the future of the program is a lingering question for many, those approaching retirement age in the next few years are likely to collect their full benefits. As such, it’s important to remember that monthly inflows can be material and there are some strategies for maximizing one's benefit.

The basics

Benefits are based on a combination of your earnings and the age at which you file for benefits. Your full retirement age, FRA, is the magic date when you are eligible to receive 100% of your benefit. There is flexibility to begin your benefit as soon as age 62, but at a reduced amount. Alternatively, you may postpone the benefit start date to age 70 and receive a 32% higher benefit.

If you're married, you're entitled to receive the higher of the benefit you earned or 50% of the benefit your spouse earned (the "spousal benefit"), even if you've never earned income. At the first spouse's death, the survivor receives the higher of his/her benefit or 100% of the deceased spouse's benefit.

Take it or leave it?

Many people elect to start Social Security payments at 62, locking in a permanently discounted benefit. By age 66, virtually all those that are eligible elect to receive benefits. If you are in the fortunate position of not needing Social Security to make ends meet, you have more options for maximizing your benefit.

The Social Security benefit formula is complex and varies by person, but the general rule of thumb is that you should delay benefits to age 70 if you expect that you will live into your 80s, at which point the accumulated higher benefits will surpass the lower age 62 or age 66 benefits. Someone with a short life expectancy would generally begin taking benefits as early as possible. This analysis relies on several assumptions about the benefit amount, tax rates, and opportunity cost.

Me, my spouse and Social Security

Like other financial decisions made by married couples, the Social Security choice made by one spouse usually impacts the other. Here are some general guidelines to follow when deciding how and when each of you should file for benefits:

The higher earning spouse should usually wait until age 70 to take benefits. This ensures the highest joint lifetime benefit if either spouse lives into their 80s.

The lower earning spouse should usually wait until age 66 to take his/her own benefits or, if higher, spousal benefits.

If both spouses are high earners, both should wait until age 70 to take benefits, and one (the lower earner of the two) should take spousal benefits at age 66, and then flip to his/her own benefit at age 70.

The general concept — that at least one spouse should delay benefits to age 70 while the second claims reduced benefits at 66 — is straight forward, but the process necessary to achieve this result isn't particularly well-known by the public. The process involves a couple of steps and can yield significant financial results, which is best illustrated by a common fact pattern:

Scenario: Husband and wife, both age 66, entitled to monthly benefits of $2,500 and $1,500, respectively, based on their own earnings histories.

Strategy: Husband delays onset of benefits to age 70, when he will collect a $3,300 benefit. Wife collects 50% spousal benefit based on husband's earnings ($1,250/mo) from age 66 to 70, then wife collects own larger benefit ($2,000/mo) at age 70.

Result: Additional $60,000 of benefits collected versus both simply delaying until age 70.

Process: Achieving this result requires the husband to file for a benefit at age 66 then immediately suspend his benefit. This gives the wife the opportunity to file an application restricted to her husband's benefit rather than her own, thus allowing her own benefit to continue growing to age 70. It should be noted that this strategy has been challenged in the 2015 budget released by the White House in March. Any change would require congressional action so don't expect to see anything on this front soon ...

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